How To Cash Out 401k?
Each day every year hundreds and thousands of employees leave their old job to find more lucrative ones. The thing that gets entangled in this whole switching process is the employee’s 401k plan. There are only two options that are available to an employee- either cash out their 401k or transfer the funds to a rollover IRA. Are you also trying to find how to cash out 401k? Worry no more! Today you will find how and what to do to cash your 401k.
Table of Content
How To Cash Out 401k?
There are three factors that are essential to cashing out your 401k:
- Your age.
- Whether you are still working or have you left the company which sponsors your 401k.
- The rules of your 401k plan.
How to cash out 401k after you leave the company?
If you have left the old job at the company which sponsored your 401k plan, then:
- Contact your 401k plan administrator. If you don’t have the contact information, then check your 401k plan statement for a phone number.
- Call the number and ask for the paperwork you will need to cash out.
As you are no longer employed at the company, borrowing the money as a 401k loan or taking a hardship withdrawal is out of the question. The only options are either taking a distribution (paying the taxes when cashing out) or rolling over the 401k to an IRA.
The money you cash out will come under the given three categories with their specific tax rules:
Regular 401(k) withdrawal
A regular 401k withdrawal is applicable when:
- You are no longer working for the company that sponsored your 401k plan, and
- Your age is 59 1/2 or above (in general, the age asked is 55 or above at the time of retirement).
When taking a regular 401k withdrawal, you only need to pay an income tax on the amount you take out. No penalty tax is applicable.
Early 401(k) distribution
An early withdrawal is applicable when:
- You are no longer working with the company that sponsored your 401k plan, and
- You are not yet 59 1/2 (don’t qualify for the 55 age regular withdrawal)
For an early 401k distribution, you need to pay an income tax and a 10% penalty tax when you cash out. If you are cashing out your 401k early because of some debt issues or creditor, you might want to think again. All your 401k assets are protected from creditors. You should be careful while choosing your retirement plans as there are so many different types of Retirement Plans available.
401(k) Rollover to IRA
You have the liberty to rollover your 401k account balance to an IRA account at a company you prefer. This way you pay no taxes during the rollover to an IRA account and your funds can stay safely in your IRA account for the future. You can withdraw the funds from your IRA when you require and pay taxes only on what you withdraw each year.
How to cash out your 401k when you are still working in the company?
A number of 401k plans do not allow an employee to cash out while they are still employed there. However, there are a few which give certain options such as a 401k loan or hardship withdrawal. BTW do you know What Are The 401(k) Contribution Limits 2017?
A number of plans allow you to take out some money through 401k loans where you borrow against your account balance. The maximum amount allowed is generally less than $50,000 or half the amount you vested in the 401k account balance. So, what do you plan to do with the money? Know What Is The Best Way To Invest $10,000?
401(k) Hardship Withdrawal
Some 401k plan allows you to get hardship withdrawal if your situation satisfies the hardship provisions. you can invest your money for extra income. Here are The 7 Best Short-Term Investment Plans For You!